Provincial rather than maritime law applies to marine engine contract: SCC

The Supreme Court of Canada has allowed a Quebec shipping transport company’s claim against a supplier in a division of powers appeal, with the majority relying on the double aspect doctrine to rule that provincial law can apply to a marine engine contract.

In Desgagnés Transport Inc. v. Wärtsilä Canada Inc., a constitutional law case concerning the division of powers between the federal government and provinces, the court decided that provincial contract law, and not federal maritime law, applied to a contract for ship-engine parts.

The majority of the Supreme Court found that although the sale of such parts does fall under federal maritime law because it has an integral connection to navigation and shipping, selling goods is governed by property and civil rights over which the provinces maintain power.

Since contracts for shipping parts are not at the core of navigation and shipping, neither interjurisdictional immunity nor federal paramountcy applied in this case, the majority found, and therefore the Quebec Civil Code pertaining to contracts applied. Under the Civil Code, a professional seller cannot rely on exclusion or limitation of liability clauses.

 “I think that the court reaffirmed the principles that were established in various maritime decisions so far as the integral connection test is concerned, and the analysis that is required in determining whether Canadian maritime law applies” over provincial legislation, says Danièle Dion, a partner at Brisset Bishop s.e.n.c. in Montreal and counsel for the appellant in the case.

In 2006, Transports Desgagnés purchased marine engine parts for one of its vessels from Wärtsilä Canada. The parts were delivered and installed in 2007, but the engine failed in 2009, causing damages of $5.6 million for Desgagnés. The parties’ contract limited Wärtsilä’s liability in both scope and time. Desgagnés instituted proceedings against Wärtsilä for the recovery of its damages.

The Superior Court of Québec ordered Wärtsilä to fully indemnify Desgagnés, ruling that provincial law governed the dispute, and that the contractual limitations of liability were rendered inapplicable by the Québec Civil Code’s provisions on warranties.

The majority of the Court of Appeal of Québec set aside the trial judgment, ruling that Canadian maritime law exclusively governed the dispute, and that the contractual limitations of liability were thus applicable.

In today’s judgment, the Supreme Court restored the trial judge’s conclusions. And in a 6/3 decision in which the minority concurred in the result, the minority further found that “the integral connection test is not a ‘constitutional’ test, should not apply and should be discontinued,” Dion says.

The integral connection test was developed for maritime matters in ITO — Int’l Terminal Operators v. Miida Electronics, Dion adds, “and is unique to maritime claims and in the maritime context.” The test is used to decide whether Canadian maritime law applies as opposed to provincial law, she says; “but what [the minority is] saying is, … other federal heads of power — trade and commerce, aviation — don't have the integral connection test. So why do we have a different test for maritime matters?”

Previous Supreme Court decisions in maritime law have applied to tort law cases. Interjurisdictional immunity, a constitutional doctrine, would have applied to a negligence or tort claim, Dion says, but as the case decided by the court today concerned contract law there was no precedent in maritime law jurisprudence.

In Canadian Western v. Alberta, the Supreme Court “held that interjurisdictional immunity should not be extended to new situations and instead limited to situations where it had previously been recognized,” says Michael Lubetsky of Davies Ward Phillips & Vineberg LLP in Montreal, who represented the respondent in the case with George Pollack and with Joseph‑Anaël Lemieux.

“In this case, the majority held categorically that interjurisdictional immunity only applies to Canadian maritime law tort claims, not contract claims,” Lubetsky says.

Pollack says that if he “were advising clients entering into contracts for the sale of goods to be provided to ships — though they may, according to the majority decision, still be considered marine contracts —they should insert robust choice of law clauses in those contracts.

“And if that choice of law calls for the application of Quebec law, [the client] better be aware of what the consequences will be — a presumption of liability, [which is] very different from failed goods law in other areas of Canada — and you will not be enabled to invoke contractual limitation clauses.”

Maritime lawyer Marc Isaacs, of Isaacs Odinocki LLP in Toronto, says he found the court’s decision in the case “surprising in one sense and not surprising in another.” Supreme Court decisions in cases such as Isen v. Simms, 2006 SCC 41, and Marine Services International Ltd. v. Ryan Estate (2013 SCC), which was decided as an employment/compensation matter, have shown “a pullback as to the scope of maritime law,” he says, “and an injection of provincial statutes into the maritime law arena.”

“I think maritime lawyers and constitutional experts are going to be parsing this decision for years,” Isaacs says. The trend in the courts seems to be that “unless the matter relates to navigation of the vessel, or it’s a pure ocean shipping matter, it’s not going to be within the ambit of Canadian maritime law. This is going to add some confusion to what is Canadian maritime law,” he adds, as lawyers will now need to question which provincial statute or constitutional doctrine might apply to a matter.

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“It's going to require [that] every contract for services in the Canadian maritime law space [include] a very specific choice of law clause,” and may make marine service providers less likely to want to sell in a province such as Quebec where a professional seller cannot rely on exclusion or limitation of liability clauses.

Editor’s note: This story has been updated to include comments from maritime lawyer Marc Isaacs.